Peter Gulia

But the plan's administrator would keep in its records the employer's written announcements, right?

Redcloud (if you’re still reading this), Luke Bailey’s points are well taken. Our first conversation mentioned the legal distinction between an employer’s business decision-making and a plan administrator’s fiduciary responsibility, and a case that involved the distinction. (And we discussed another case that led to a big shift on how plans’ sponsor specify an essential provision of an employee-benefit plan.) I doubt your course on employment discrimination has even mentioned ERISA’s distinction between “settlor” and fiduciary decisions. We could cover it when we look at your draft of your outline. Thinking about how the terms of a negotiated settlement in an employment-discrimination case could affect obligations to or under not only retirement but also health and other employee-benefit plans might be an aspect of the employer’s and the plaintiffs’ negotiating positions. And once there is a judgment or settlement, some aspects of implementing it might come into a plan administrator’s fiduciary functions. Let’s check-in when you’re ready.

Luke Bailey, thank you for an intriguing idea. For a few service providers, I’ve designed non-discretionary claims-processing regimes—not only for hardship and unforeseeable-emergency claims, but also for other kinds. For some kinds, a sensitive issue is specifying which conditions result in a kick-out to a discretionary reader. In developing the method for deciding a hardship claim using what the IRS calls a “summary of information on source documents”, the IRS could have set an upper limit (for example, requiring a plan’s administrator to collect and consider source documents for a claim that would pay more than $nnn,nnn) but did not. See Internal Revenue Manual 4.72.2. Before presenting the memo at 2017’s TEGE conference, the IRS people had worked on this for at least 12 months. They knew recordkeepers would make system changes grounded on the memo. And they knew that for many plans tax law’s constraint is the only constraint. For a hardship claim (if it does not require a spouse’s consent) under a typical individual-account retirement plan, no person has a direct economic stake in denying a claim. The key restraint is a fear of losing the plan’s tax treatment. If a plan’s claims procedure is within what the IRS’s employees are instructed not to challenge, there might be little or no reason to seek discretionary decision-making. (I have seen administrators specify, or recordkeepers use, heightened identity controls for a claim that exceeds an amount threshold.) My first post in this discussion described a way an administrator might decide against an unusual claim. Some might want discretion to deny a claim. And some, lacking an automated regime of the kind I described in my second post, might be stuck with discretion. But an employer/administrator might consider whether it likes discretion (perhaps to help protect all or some participants from themselves), or whether it prefers not taking on any more discretion than is needed to obey public law and the plan’s governing documents.

Here’s a follow-up question to sate our curiosity: Imagine a plan’s employer/administrator instructed its service provider to decide hardship claims, without discretion, using a procedure designed to apply the regulation’s deemed needs and permitted assumptions. The procedure also uses the Internal Revenue Manual’s method for processing claims using only the claimant’s written representations (without collecting supporting documentation). All this is completely computerized. The service provider has done a perfect job of implementing everything the regulation and the IRS method call for. The claimant checks all the right boxes, and completes every “I certify” statement. (Nothing in the plan’s records has information that, even if fully used, could reveal any lack of truthfulness in the claimant’s claim.) Would the claim described above get routine processing through the system?

Bill Presson, thank you for the vote of confidence. CuseFan and ESOP Guy, thank you for contributing ideas I can use to help guide the student. Moments after Redcloud’s post, we had a productive conversation about a still-in-development research topic. Redcloud’s first imagination might include some mistaken assumptions, and the hypo or research question might change a few times before Redcloud’s professor approves an outline. Consider also that different pension professionals might work with quite different sizes. An employee-benefits lawyer’s work often focuses on situations that involve tens or hundreds of thousands of participants. Or, as in most of my experience, with systemic processes used for millions of participants.

An important part of the lobbying and legislative “deal” that moved the legislation that became ERISA was big businesses’ desire to get national preemption of State laws. See, for example, State v. Monsanto Co., 517 S.W.2d 129 (Mo. Sup. Ct. Dec. 16, 1974) (Before ERISA, Monsanto’s provision of health and welfare benefits was insurance subject to State regulation.) Also, a preceding Federal law, the Welfare and Pension Plans Disclosure Act of 1958, had already treated those different kinds of plans together. For more information, see James A. Wooten, The Employee Retirement Income Security Act of 1974: A Political History (2004).

For Temple University’s law school, I teach (now going on 11 years) a specialized course on ERISA Fiduciary Responsibility. I teach it, and my summer-semester course on Professional Conduct in Tax Practice, as writing courses. Beyond my courses, I’ve served as consulting or reviewing faculty on papers for others’ courses or for independent-writing projects. I have experience with help a student choose and refine a topic, and plan how to research it. If doing so doesn’t interfere with anyone in your school’s faculty, I’d be glad to converse with you to help you discern whether your idea would research and write effectively to fulfill your course’s or project’s purpose. Also, I can tell you about (at least) two big cases you likely would want to consider in your research.

Without commenting on Paychex’s or any service provider’s particular fee: Many ERISA practitioners believe a reasonable exit-processing fee an independent fiduciary approved as a part of a reasonable service agreement with no more than reasonable compensation that meets all conditions of ERISA § 408(b)(2) is an exempt prohibited transaction. I have no more than a surface awareness of antitrust or competition law. Perhaps a lawyer in that field might see a bundling, tying, or price-discrimination arrangement, and (if there is) might consider whether Paychex has enough market power for the arrangement to be anti-competitive.

While I don’t conclude any particular answer, here’s a bit of framework for thinking about the questions. The point of a deemed need is that an administrator follows it without evaluating whether the claimant truly needs what the claim asks for, to the extent that it is within the deemed need. 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B)(2) ends with the phrase “(excluding mortgage payments)”. And a plan’s governing document might include some text meant to follow this. An administrator might interpret the plan’s provision to allow no more than the amount the claimant would pay to buy the residence had he financed with a mortgage the portion of the purchase price that typical principal-residence purchasers usually so finance. (This is only one of several possible interpretations.) A plan might allow a gross-up for “any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution”. An administrator must explain its denial (or partial denial) of a claim. Consider including a written explanation of the administrator’s interpretation. The textual analysis might include analyses of the whole texts—that is, of the whole rule, and of the whole statute the rule interprets and implements. The administrator might follow carefully its claims procedure. If the claimant complains, afford the claimant an opportunity to present any further facts that might support his claim. If a complaint is about the interpretation, invite the claimant to present his legal argument. If the plan grants discretionary authority, courts defer to a fiduciary’s interpretation unless it is so obviously wrong that the decision could not have resulted from any reasoning.

If the questioning physician wants advice, he might consult Asrar Ahmed, the author of ERISA and Sharia Law and Can Sharia and ERISA Coexist?. He is an EBSA Senior Investigator and presumably would not provide advice on a question of U.S. law that could come before the Labor department. But perhaps he might on his own time provide his advice on a question of religious law, which the Labor department would not consider. One can find him on LinkedIn.

Luke Bailey gives us good practical guidance. In my experience, too many employers and administrators unwisely reach out to decide or do something before there is a claim to respond to. (So far, Kansas401k avoided that trap.) And too many neglect opportunities to channel “concerns” into the plan’s claims procedure. Following a careful claims procedure gets predictably stronger results. Luke Bailey suggests one way an administrator might help protect the administrator’s decision-making. (Showing an estate-planning or family lawyer how to turn her client’s wish into something the plan can deal with often is effective.) Another way, perhaps depending on the ambiguous facts and circumstances, might be to inform the “concerned” telephoner that anyone can submit a written claim. (It even could be a claim that recognizes the surviving spouse is the beneficiary, but asserts that she ought not to be the payee and that the plan ought to delay payment for a reasonable time so a conservator can be appointed.) Following the administrator’s claims procedure, including forming written explanations for each denied claim, makes it much easier to defend the administrator’s decision. That’s so even for situations in which people are embarrassed, defensive, or hostile. And it can avoid unnecessary expenses. Why burden participants’ accounts with an expense for attorneys’ fees to show a court the plan’s primacy if that unpleasant exercise could have been avoided? My observation is more than anecdotal. It’s grounded on my experience as counsel to a big recordkeeper (with many thousands of plans and millions of participants), advising a work unit that handled big volumes of death claims. We used business-process measurements to discover ways to make claims-handling more effective, and to manage our and plans’ expenses. Sometimes, there is a healthy balance between asserting or defending a plan’s primacy and avoiding unnecessarily deciding a claim in ways that might offend others’ sensibilities. Also, giving interested persons a way to be heard strengthens the decision-making. Even unlearned judges can understand the idea of deference to a process. If the “concerned” telephoner was invited to, but didn’t, use a procedure to slow down payment to the potential conservatee, a judge looking into the situation might have more empathy for an administrator’s decision to pay the named beneficiary absent any reason not to.

C.B. Zeller, thank you for your help in the earlier conversation, and for reminding us about it. (BTG, my posts in the earlier conversation and above, taken together, explain how 408b-2 and 404a-5 disclosure rules need not be an impediment.) It seems many big recordkeepers lack a business interest in facilitating payments to unaffiliated investment advisers, until enough plan sponsors demand that service and have the bargaining power to motivate the recordkeeper to build it.

Even if a plan’s administrator in its discretion finds that a beneficiary is an incapacitated person, many plans’ governing documents grant the administrator permission to pay a conservator or other fiduciary for the incapacitated person, but do not command that means of payment. However, a careful administrator might prefer a means of payment likelier to show a satisfaction of the plan’s obligation to pay the benefit.

Here’s the ERISA rule that recognizes using a distinct summary plan description for each class of participants and beneficiaries. https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-B/section-2520.102-4

For an ERISA-governed individual-account retirement plan that provides participant-directed investment, such a plan’s fiduciary could allow directing participants to select, individually, one’s investment adviser, and to direct payment of a reasonable investment-advisory fee with a charge against the directing participant’s individual account. A fiduciary allowing such an arrangement might (i) restrict it to registered investment advisers; (ii) restrict it to advisers that commit to the allowing fiduciary’s terms, including assurances about delivering initial and updated ERISA § 408(b)(2) disclosures to the allowing fiduciary; (iii) require a directing participant to certify that she received all disclosures required under investment-adviser law and ERISA § 408(b)(2); (iv) set a maximum on the investment adviser’s fee a participant may direct, and (v) require that the fee be charged in a format and on an interval the fiduciary finds efficient for the plan’s administration with the recordkeeper’s services. I’m unaware of an ERISA Advisory Opinion that speaks to the question BTG asked. But there are tax-law rulings that support paying an investment adviser engaged by an individual, rather than by an employer plan’s fiduciary. In Letter Ruling 93-16-042 (January 27, 1993), the IRS assured a participant that quarter-yearly payments of her investment adviser’s fee would not tax-disqualify her § 403(b) contract, would not be distributions, and thus would have no tax consequences. The IRS treated the investment adviser’s fee as analogous to a trustee’s fee incurred by a § 401(a) plan. Under the investment-advisory agreement and § 403(b) contract presented in the ruling request, each individual participant would engage the investment adviser, and instruct her § 403(b) contract issuer to pay the investment adviser’s fee and count those payments as charges against the § 403(b) contract’s account balance. (For a § 403(b) arrangement, an annuity contract or custodial account fills the function of what otherwise would be a retirement plan’s trust.) The IRS’s analysis did not depend on any express or implied approval by a plan’s fiduciary. There could not have been such a condition because the ruling requestor’s § 403(b) contract was not (and never had been) held under any employer’s plan. Further, the ruling specifies the participant, the investment adviser, and the § 403(b) contract issuer as the parties to the arrangement. The ruling mentions no fiduciary other than the participant’s investment adviser. The IRS’s reasoning, which the ruling itself describes as a “well established” general principle, applies widely for all kinds of eligible retirement plans and without regard to the investments held under the plan.

Before a court appoints a fiduciary, a threat of Labor’s enforcement might persuade an employer to administer its plan. In those circumstances, an owner/employer/administrator might see sense in reasonable corrections. And those circumstances might give a third-party administrator some bargaining power to negotiate reasonable fees (including payment in advance) and protective terms before the TPA accepts an engagement. Before revealing information to a participant, one might consider whether the information was disclosed with an expectation or presumption of confidentiality or privacy and, if so, whether professional-conduct rules, a voluntary association’s rules, or one’s personal ethics preclude revealing the information. But those questions might not arise because a participant might already know enough information to support her complaint.

If no one claims the death benefit, there might be nothing the plan’s administrator need decide until the plan provides an involuntary distribution as a § 401(a)(9)-required minimum distribution. If a distribution is no more than the § 401(a)(9) minimum-distribution amount, it’s not an eligible rollover distribution. (If the plan mandates an involuntary distribution of the whole account paid as a single sum, a payer might divide the tax-reporting between minimum-distribution and rollover-eligible portions.) I’ve heard some default-rollover businesses also process non-IRA accounts.

Adi, thank you for your cogent explanation.

Thank you for pointing us to the other thread. It mentions a point of law I’ve published on since the early 1990s. Securities issuers and intermediaries face at least three constraints in explaining an investment using a language beyond English. 1. Federal securities law prohibits using foreign-language materials unless the issuer also furnishes the complete prospectus in the same foreign language. Investment Company Act Release No. 6082 (June 23, 1970); American Funds Distributors Inc., SEC Staff No-Action Letter (publicly available Oct. 16, 1989). 2. If a broker-dealer or its representative allows a presentation to be translated, the broker-dealer “must take steps necessary to ensure that the translation of its presentation is accurate, regardless of whether it or its client [including a plan fiduciary] provides the translator.” Nat’l Ass’n of Securities Dealers (now Financial Industry Regulatory Authority [FINRA]), Interpretive Letter Applicability of NASD rules to a member’s use of a translator for group retirement plan enrollment presentations (Nov. 26, 2001), available at https://www.finra.org/rules-guidance/guidance/interpretive-letters/name-not-public-70. 3. A securities broker-dealer must not allow its representatives to use a language beyond English unless the broker-dealer has supervisors fluent in that other language. See FINRA, Disciplinary and Other FINRA Actions (for Apr. 2013), available at https://www.finra.org/sites/default/files/DisciplinaryAction/p241449.pdf; see generally James A. Fanto, Jill I. Gross & Norman S. Poser, Broker-Dealer Law and Regulation, chapter 13 “The Broker-Dealer’s Duty to Supervise” (Wolters Kluwer 5th ed. & Feb. 11, 2020 update). Those constraints apply to securities issuers and intermediaries. They might not apply, at least not directly, to an employer/sponsor/administrator not in a securities business. But the securities-law constraints might practically constrain the services an employer/administrator can get from an investment adviser or securities broker-dealer. That’s an aspect for why I hope to crowd-source my question: which funds have a prospectus in Spanish?

Assuming a plan administrator has not escaped the problem by furnishing its preferred form of court order, what do BenefitsLink people think about which is the better or worse way to handle an account division’s allocation problem: Include in the plan administrator’s QDRO procedure defaults for how the alternate payee’s award is allocated between non-Roth and Roth subaccounts? This way risks that a participant or an alternate payee is unhappy with the default allocation, and claims the administrator somehow breached its responsibility. Even if such a claim is meritless, it’s an expense to respond to the claim. Insist that a court order specify all details for all allocations, including between non-Roth and Roth subaccounts? This way often incurs expenses to respond to inept domestic-relations lawyers. What do you think: which path is more painful, or more expensive?

Beyond checking that a domestic-relations order “clearly specifies” enough details that one can follow the order without discretion, a plan’s administrator also might check whether the order’s division is one the recordkeeper would implement within the recordkeeper’s obligation under its service agreement.

American Funds (managed by Capital Group) provides prospectuses in Spanish? Any others?

BG5150, I have not seen a court decision with reasoning on your question. Likewise, I have not seen a court decision finding, or even a complaint asserting, that a fiduciary breached by failing to consider the availability of a prospectus in Spanish as an element of the fiduciary’s evaluation of investment alternatives. Absent a specific command in a statute, rule, or governing document, whether a fiduciary breached turns on comparing the complained-of fiduciary’s conduct and decision-making to what would have been done using the care, skill, prudence, and diligence that would have been used by one experienced in managing a similar plan. For now, I’m just seeking to crowd-source a little factual information.

Of the popular mutual fund providers, which furnish prospectuses in Spanish, and which do not?

If JOH’s mention of non-ERISA does not refer to a governmental plan or a church plan: If the charitable organization neither “establishe[s]” nor “maintain[s]” an employee-benefit plan, there is nothing the employer must decide and, likely, nothing the employer may decide. Rather, the insurer or custodian decides whether it provides a loan, including deciding whether some set of preceding facts makes a participant not entitled to some right that otherwise might be provided under the annuity contract or custodial account.